Despite Medicare, out-of-pocket health care costs are substantial among the elderly population. However, the distribution of these costs is quite skewed. For many elders, their impact is modest, while for a subgroup they are sufficiently large in proportion to income to constitute a significant financial burden. It is important that the size and characteristics of this latter group be understood, so that health policies can be shaped so as to protect the vulnerable while containing overall costs, yet surprisingly little current information is available on this important question. The proposed study aims to address this gap using newly-available data, in a quick- turnaround project which is expected to bring timely new information to policy debates about financing health care for older people and the impact of alternative proposals to increase the extent to which they share in the costs of their health care. Using the first three waves of the Medicare Current Beneficiary Survey Cost and Use files, for the years 1992-1994, measures of financially burdensome health care costs among the elderly living in the community will be constructed by relating the level of out-of-pocket costs to current income. Utilizing the longitudinal design of the data, the project will distinguish elderly individuals with persistently high out-of-pocket costs relative to income from the elderly who experience financially burdensome costs only intermittently or not at all. The role of key demographic, socioeconomic, and health variables in the determination of financially burdensome costs will be explored, including race, gender, education, supplemental insurance benefits, managed care participation, functional impairment, self-rated health status, mental illness, Alzheimer's disease, the presence of other specific medical conditions, and use of home health care services. The multivariate analyses will incorporate statistical techniques which recognize that managed care participation and supplemental insurance coverage are choice variables which may reflect unobservable individual characteristics that affect the probability of financially burdensome costs. Finally, the project will assess changes over the 1992-94 period in the incidence of financially burdensome cost, and explore the role of managed care growth and other policy developments in these trends.